Today, Im looking at two investing themes: growth and income. Ill compare ASOS (LSE: ASC)vs Boohoo.com (LSE: BOO) and Next (LSE: NXT) vs Debenhams (LSE: DEB). I show you how I believe a blended approach of growth and income could reward patient investors over the long term.
Well, here we are in a rather cold February Ill wager that the retailers would have rather seen this sort of weather in September of 2014. A nice cold snap can do wonders for their Autumn offering! But Im not thinking about the odd good or bad season here. Im looking at where these companies could be in the next three to five years for those prepared to get rich slowly.
First up, Next. This company is a quality act and the share price reflects this, having almost tripled in the last three years. Whilst you will not see blistering sales growth from this maturing company, we do have razor-sharp focus on shareholder return. Indeed, ithas recently announced a special dividend of 60 pence per share to be paid in May. This will be followed by three further special dividends of 60 pence should the share price remain above 67. This is good for a yield of over 5% including ordinary dividends. This arises from Nexts ability to generate large amounts of excess cash, which it returns to shareholders.
Now for Debenhams. This is an interesting situation owing to the presence of a sizable position of Sports Direct in the business. What he intends to do is currently unclear but it is certainly something to watch going forward. That aside, sales for the all-important Christmas period surprised on the upside with like-for-like sales increasing by 4.9%. Couple that with a forward PE of just over 10 and a forward yield of 4.5%, and you have the cheapest of the companies being considered today.
Next up is ASOS. Despite its dramatic share price drop from over 70 to 31 as I type today, this company still trades on an eye-watering forward PE of 67 times earnings! All this at a time when margins are under pressure from promotions. But I did say that we were taking a long-term view and this company has never screamed cheap. Additionally, it is fair to say that ASOS certainly is building itscapability to service an ever-expanding customer base. Once in place and with continued sales growth, I can see this being a mini Amazon in the making.
Last but by no means least Boohoo.com. In a similar style to ASOS, this company has had a significant fall from grace following itsChristmas trading update in January. Despite this drop, it still trades on a forward PE of 20. But, like ASOS, it has net cash. In a similar model to ASOS, itplans to increase itpresence online and profits are predicted to almost double by the year ending 28th February 2016. In addition, the management have a strong background in the clothing trade, which could pay dividends going forward.
Whats My Pick?
For me, I dont mind paying for quality when looking for income, and Next fits the bill perfectly. If forced to pick from ASOS and Boohoo, Id pick Boohoo. Its currently cheaper than ASOS and I think that it can grower more quickly over the next five years. This blended approach is well worth some further research.
If you would like some guidance on how to make your own blended portfolio, then have a look at these two free reports. First, we take a look at how dividends can keep you warn at night within “How To Create Dividends For Life“, and thenhow growth shares can seriously improve your wealth within “10 Steps To Making A Million In The Market“. These reports are completely free but won’t remain available forever, so don’t delay!
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